AM Best’s ratings for Ethio Re reflect the strong balance sheet

AM Best has assigned Ethiopian Reinsurance SC (Ethio Re) a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of ‘bb’ (Fair) with a stable outlook.

Ethio Re is a small-scale reinsurer by global standards, founded in 2016, with a portfolio of composite reinsurance businesses in Ethiopia and a select number of other African markets.

At year-end June 2023, the company reported gross written premiums of USD 35 million and generated 95% of its revenues in Ethiopia.

According to the agency, these ratings reflect Ethio Re’s balance sheet strength, which AM Best assesses as very strong. This strength is underpinned by its risk-adjusted capitalization, which is comfortably at the strongest level as measured by Best’s Capital Adequacy Ratio (BCAR).

According to AM Best, the ratings also reflect the reinsurer’s adequate operating performance, limited business profile and marginal risk management.

The agency expects that Ethio Re will have healthy capital buffers above the strongest threshold as it continues to implement its strategic growth plans and will benefit from internal capital raising and capital injections from its shareholders.

AM Best noted that the high economic risk and very high political and financial risks in Ethiopia could be a compensating rating factor. This is mainly because the reinsurer derives the majority of its business from Ethiopia and also has all of its invested assets in Ethiopia.

“In AM Best’s view, these risks are partially mitigated by the company’s conservative investment portfolio by asset class, with 84% of total investments held in cash and deposits as of year-end June 2023, limiting Ethio Re’s exposure to market risks and the ongoing restructuring of Ethiopian euro-denominated sovereign bonds,” the agency said.